What The NBC, News Corp. Video Deal Means to Google

Analysis: NBC Universal and News Corporation's announcement that they've partnered to distribute their video content across the Internet to anyone who's willing to honor their copyright and split advertising revenue is just the latest piece of bad news for Google since it bought YouTube last year.

Despite its popularity, YouTube's legal bills are building with recent lawsuits charging that it take down copyrighted content. Plus, expect that NBC and News Corp. would want to make sure none of their material is on YouTube once their video site launches. And that can make monetizing its traffic hard to nail.

The problem is that most of YouTube's content is either user-generated or a form of copyrighted content and both types are difficult to monetize. Big brand advertisers are typically shy of user-generated content because of its low-quality and unpredictable nature. The same advertisers avoid the studio-produced hits on YouTube because most of it is illegally uploaded to the site. They don't want to participate in copyright infringement.

So monetizing the user-generated content and reaching agreements with copyright holders such as NBC, News Corp and Viacom to share advertising revenue earned against their copyrighted content have been Google's two YouTube problems since October.

Forrester Research analyst James McQuivey thinks if NBC Universal and News Corporation launch their Internet video distribution network this summer as they plan, expect them to shortly thereafter follow Viacom's lead and demand Google remove all of their copyrighted content from YouTube.

During a conference call with reporters on Thursday to discuss the announcement, News Corp. president and CEO Peter Chernin and NBC Universal president and CEO Jeff Zucker said they had talked to Google CEO Eric Schmidt that morning and offered to make YouTube a distribution partner.

McQuivey doesn't expect Schmidt or Google to take up that offer.

He said Google believes in the proverbial Long Tail, wherein the combined views of many millions of less popular user-generated videos will in fact generate more advertising revenue than the relatively few, if highly popular, copyrighted videos NBC and News Corp. will demand be removed. To visualize such a Long Tail, think of a graph with number of views on the Y-axis and video titles on the X-axis. The Daily Show would probably be near the front and a video your grandmother's birthday toward the very end with millions in between.

In an email to internetnews.com a YouTube spokesperson said the site's community is what makes it so popular for content contributors both "large and small." McQuivey agreed. "If you have that social engine going, which YouTube does, you don't really need to worry about the front end of the tail," he said.

"[Google is] still going to bring in millions and millions of viewers because there is always the need to be socially connected, to know what's going on among your friends. That need doesn't go away just because The Colbert Report is no longer on YouTube."

But neither does the need for Google to return a profit on its $1.6 billion YouTube investment, early skeptics would no doubt point out. And Google's faith in the Long Tail won't automatically make brand advertisers any more eager to put their products next to low-quality and uncontrollable user-generated content.

Google is probably so comfortable hedging its bet with the Long Tail because it literally nickles and dimes it's way to record-breaking profits and growth most quarters. But it's much easier to pair a sponsored search result with a keyword than it is to decide which advertisement is most likely to get click on when placed next to a video of your roommate tripping over a cat.

McQuivey is convinced that if Google's plan all along was to let the major studios pull their content from YouTube, they should have never let the issue get to the point where Viacom filed a $1 billion suit against them. He said they should have focused their energy on fixing their ad model.

But finding away to serve advertisements against Internet video not an issue unique to Google. During Thursday's conference call, News Corp.'s Chernin admitted the new venture with NBC faced a similar challenge. He said they haven't decided what type of ads to run with their videos yet.

. "We've got a lot of learning to do," Cherin said, which McQuivey took one step further: We all do.